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10 Issues That Are Crippling the Auto Industry March 18, 2009

Posted by aetiusromulous in Commentary, Economics, news, politics, Video, YouTube.
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A Handicappers Guide to Betting on Big Auto

 1) Market Meltdown

        Even the best of the best are hurting because there just isn’t the demand there was in the past. All automakers are hurting.

2) Market Demographics

        The Baby Boomers fueled the era of huge Auto, and they are very quickly moving out of the market for cars (Hearse demand may rise however)

3) Business Model

        Huge volumes of extremely expensive products demand massive credit for consumers to make purchases. Worse, the ancient “new model every year” plan has become unsustainable, causing as it does incredible investments in R&D and annual retooling of complex assembly plants.

4) Product Share

        At the height of the free credit boom, American auto makers surrendered the car market to the Japanese, and turned to big, expensive, fuel guzzling SUV’s and domesticated tanks. Having at one time 70% of the North American SUV share, that market is gone for good to US automakers.

5) The Auto Food Chain

        Supporting these industrial behemoths, are equally massive supply chains of hundreds of international companies that do nothing but supply the bits and pieces of each and every auto. Problems at the sales end gush through assembly and down into the suppliers exponentially. Most, if not all of these invisible suppliers are themselves going bankrupt in the mess.

6) Dealer Network

        At the retail end, down in the trenches, an oversaturated dealer network – which has always had an adversarial relationship with the manufacturers – is melting quietly away.

7) Geopolitical Graft

        Wielding the power to create jobs and taxes unlike any other industry, the Auto giants have for years made plant location a political, rather than economic decision. These same politicians however, are solely responsible for dealing with the collapse, bringing the specter of protectionism and nationalism into the equation.

8 Labour Costs

          International inequities in labour costs force American car makers to compete with one hand tied behind their back. While their foreign plants remain profitable for the most part, each American company must battle a giant sucking sound from their North American P&L’s. Furthermore, a generation of sacrosanct “Legacy Costs” adds billions in liabilities to their balance sheets which other companies simply don’t have (or ever will after this).

9) Environmental Issues

          The costs of environmental compliance are irregular across the planet, further penalizing those who build in and for the North American market

10) The Death of the Dream

          Big, insanely expensive, and over the top luxurious autos were the embodiment of the American Dream for a generation, making General Motors, Ford, and Chrysler a birthright to Americans. That era is done and gone, and the humble automobile is returning to function over form – everywhere but in North America, where the “Big Three” are still fast asleep, dreaming of a return to 1950’s America.

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